All those “flip it” shows on TV make it look so easy. Buy a house on the cheap, fix it up and then lease it or sell it for a huge net gain, no problem… except for normal people who aren’t on TV it can be a problem, a hugely expensive one. So is it better to buy cheap investment properties?
You know you’ve heard the commercials and infomercials about buying cheap and flipping properties. It’s the old if you buy cheap you have room to fix it up and if you rent it for more than your mortgage payment, you make more money. That may be true, but as a new investment property owner or one that doesn’t regularly fix up houses, what do you know about how much it will take to fix the problems in a cheap house?
Here’s the downside
If you buy a house to fix up and rent you start out at a disadvantage. You are paying on a mortgage, paying a contractor and hoping that the refurbishments don’t tank your budget. On a cheap house it’s more likely than not that it will. Foundation issues, termites, bad former fixes, you name it. Rip out a wall and find out there is bad plumbing, electrical or structural issues. All of these can severely impact your budget.
Pay more up front for a solid house that needs minimal or no work (such as replacing an appliance over tearing out the whole kitchen) and you can rent it out immediately. Now you have income at or before you have to start making mortgage payments. Even if you can only get most of your mortgage payment covered by the rent, you’ll still come out ahead come tax time.
The more important thing is to maintain that solid property and build equity through value as well as through paying down the mortgage.
Don’t buy cheap or you’ll get cheap… and all the headaches it brings with it.